Let Your Business Legacy Propel You to New Horizons

"My business is not for sale" is a comment that we hear a lot in the M&A business.? Although probably true for most businesses, at any given time, it does not mean that you shouldn’t be thinking about it.? Planning an exit strategy is critical for any business, because the need for that exit may be unexpected.? The carefully planned sale of a business takes time. ?Building long-term relationships and partnerships plus a multi-year understanding of the marketplace is a good place to start.? Many business owners also assume that “I am good at operating my business, so I will also be good at selling it.”? This is rarely a true statement; you will do better if you have help.

If you are over 45, have a changing family dynamic, are unable to spend as much time on your business as you would like, and/or have unexpected changes in financials, it is time to consider what the sale of your business might look like.? Creating a plan for the future sale of your business can take many months and should never be rushed if you intend to maximize your profit.

The first question that comes up is usually “What is my business worth?”? This is also likely to be the most difficult question.? Yes, there are many formulas that are a multiple of EBITDA, sales, assets and/or other numbers.? These formulas vary widely from one industry to another, and there is much debate about them.? At the end of the day, the only genuine and accurate valuation of a company happens when a buyer and seller agree on a price and they both believe that they got a fair deal.? Getting to the right asking price is going to take discussion, research, understanding, and negotiation.? If you have not talked about the value of your business with others in your industry, financial professionals, and M&A intermediaries/consultants then you will need practice.? It is also recommended that you get a professional to assess the value of your business.? This needs to be done by someone who specializes in business valuations, knows the specific industry that you are in, and is NOT your banker, a family member, or anyone else who might benefit from you receiving a large sum of money.

Many business owners have what is called an “anchor price”.? For example, there were three business partners that insisted they each wanted five million dollars when they sold their business.? Unfortunately, this statement was not based on any realistic numbers or analysis that suggested their business was worth a total of $15 million.? Another form of anchor price is when a business owner has a good idea of what their business is worth, and they significantly raise their asking price over that number.? This may be done for several reasons including deterring people from talking about the sale of the business, leaving room for price negotiation and plain old-fashioned pride. ?Ironically the anchor price may also be the “shut up” price.? This happens when a buyer agrees to pay an inflated asking price that makes the owner stop talking and start acting like the business is for sale.? This again can happen for many reasons, including the buyer’s plans for the business, which may be unknown to the seller.?

Another thing that must be considered is what will happen with the proceeds of the sale?? Investment strategies, whether you are planning to retire, whether or not you plan to buy or build another business and/or avoiding paying unnecessary taxes on the proceeds, are all things that need to be considered.? This again will take time and your family, friends and partners will all likely want to have a say in the discussion.? This is another matter where unbiased professional advice is recommended.? Knowing what your financial position will be after the sale of the business is critical and it should never be a surprise.? Think back to when you started the business; wasn’t making money and retiring as a wealthy person part of the original plan?? Are you still planning for that?? If not, then why?

“I have too much of myself invested in the business.”? “I care too much about my employees to hand them over to someone else.” and “I want to have a say in what happens to my business after I sell it.” are all reasons why people may refuse to consider selling.? This is easy to understand because, to an entrepreneur the business is “their baby.”? They envisioned it, they created it, they fell in love with it and cannot imagine their life without it.? These are all admirable sentiments, but they are also emotional and not based on sound business practices.? These types of statements will also cloud your judgement when the best time to sell your business is at hand.? Your feelings, what you value about the business, the culture of the business and its employees, and what happens after you are no longer the boss are all things that can be discussed during the negotiation of a sale.? There is a hard reality to understand here which is, a day will come when you are no longer the boss.? Regardless of the reason, (health, money, divorce, a decision to sell or even inaction on your part) you will lose control of the business at some point.? Knowing this reality suggests that it would be foolish not to talk about the inevitable. ?Your family and partners may also have opinions that will likely not be voiced until the topic is openly discussed.? Many sellers are surprised to find that their family and partners react in ways that they did not expect, when the sale of the business is discussed.? A common one is that owners assume that their children will take over and continue their legacy, only to find that none of their kids really want to.

Another thing that deters people from selling their business is retainers and “progress payments”.? Many brokerages charge up-front fees and monthly payments during the time when the business is being listed, marketed and sold.? This is an easy problem to solve.? Simply do not hire anyone who wants fees up front and monthly payments.? These costs do not incentivize the team working with you to sell the business as quickly as possible.? In fact, the opposite is true.? You should only work with an intermediary and a brokerage firm that has a fiduciary duty to their client and only gets paid when you successfully close a transaction with them.

The common thread here is that selling a business takes a significant amount of time, money and effort.? Developing a relationship with the right professionals who will protect your confidentiality, help you with getting organized and maximize your profit is critical to closing a successful transaction.? You should start these conversations well before you list your business for sale.? Then and only then will you be able to have some confidence in knowing that you have made the right decisions, at the right time and for the right reasons, with regards to selling your business.

Author's Note: We all benefit from being active on LinkedIn. Please like, comment, connect/follow and message. I am always happy to talk and answer questions about business and investment deals.